Unfortunately there is no easy answer here, every state is different as far as their requirements. Hopefully I can clarify a lot of misconceptions though:
Sales tax has been around for many many years. It was originally designed to tax retail stores for locally sold products. Originally it was a simple system because everyone would buy from their local store.
Interstate sales started occurring more regular with mail order, then it exploded when eCommerce started making its mark.
Since that time states STILL do not have a solution for interstate commerce, which means sales made to someone who lives outside of the state where you live is not subject to paying sales tax on their purchase.
With that historical background out of the way, the simplest answer I could give is that most likely your state only requires sales tax to be paid if you ship a kickstarter reward to someone WITHIN your state. With that being said, your state may have specific rules that may need to be followed, that’s why it is important to talk to a professional who can look up those rules for you.
Here in California, you are only required to pay sales tax on products shipped inside the state. In addition to that, there is also a district tax for specific areas within California. For Example, if you live in Sacramento, and you ship a kickstarter reward inside Sacramento, then you will have to pay a district tax on that item as well as the state sales tax.
The absolute best way that you can approach this is to incorporate your business in a state that does not have sales tax, such as Delaware, then distribute (ship) your kickstarter rewards and products from a state that ALSO does not have sales tax. This way you can typically avoid that altogether. This would only be necessary if you feel a lot of your backers will happen from the state that you live in.
Typically, if you do conduct a successful kickstarter, and you do ship products inside a state that has sales tax laws, you must pay sales tax on those items. The same goes with intangibles, such as video game sales.
Again, these rules vary state by state, so you may need to consult a professional.
Again, this article is only meant as informational, many individuals and companies have unique situations, I recommend you consult a professional before applying any of the above information.
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How can a foreign person, not living in (or near) the united states, start and run a Kickstarter Campaign? Here are the basics of how it can be done:
There are many requirements to start a Kickstarter Campaign. Two big ones are to have a US Entity (LLC or Corp) or Social Security number, a US resident, and a US bank account. These two requirements alone would deter quite a few foreigners from trying, you would need someone you knew and trusted in the US to handle that for you. Even then, that person could face tax consequences for running that bank account for you if it is not properly planned (I will cover this in a later post). This leaves very few options to set one up.
A Difficult Solution:
1. First things first, I had to start a corporation so that the foreigner(s) would be the sole shareholder(s): A Delaware Corp is a great idea, they are cheap, provide excellent legal protection, and have a small Franchise Fee for share holders (Typically $225). I can set these up for $550 with a 48 hour rush ($500 without), highly recommended for time constraints of setting up Amazon Payments. I highly recommend you DONT use any of the silly websites that charge you to set up the corporation, they typically charge a mark-up and sometimes yearly fee, most of them do not allow the rush either.
2. Second, I apply for an EIN number – This one is pretty simple and can be done once the Corporation is in place. If you already have a SS# or ITIN you can get an EIN here
3. Next step is to Get a US resident to be part of your team as a “Creator” or “Developer”. This is the tough part. If you are trying to run a Kickstarter campaign, you need to have one. Amazon Payments needs to confirm that your company name listed on the bank account is associated with your US address. Kickstarter also requires this in their own version of verification. The US helper must be available to use their name for Kickstarter. They must be considered a key “creator” in your team. You, as the foreigner can still hold signer privileges on the bank account, but it may be difficult – see below 4. After you get a helper, you need a US based Checking Account To set up a bank account without my help, you need:
- A tax ID number registered with the IRS. You can get one by filling out and mailing in this form: http://www.irs.gov/pub/irs-pdf/fw7.pdf You will need to provide a physical copy of your passport.
- Once you get that, find a bank that is located in the US, that has a branch in your country. You must be able to go there in person to set up your signature account. Use your ITIN and EIN number to open the account. Your helper in the US may need to provide documentation supporting this information to a local location. You MUST have a US address on the bank statement, but it can be managed online by you as a foreign person.
- Some banks such as wells fargo allow a notarized copy of the application and ID to be sent courier as long as your US helper is involved and in person at the bank when the account is set up. Banking laws require bankers to “know” you, which means you must prove to them that you are real and legitimate.
- I have also heard that some foreign banks, who also have a presence in the US will help you set up a US account without the need for a US helper. I am not sure which banks offer this though.
- You can have a friend or family member that you trust who lives in the USA (with a SSN) open up a checking account and be an authorized signer on the account for your business.
5. After this process, you may ask: Can I get taxed in the USA for Kickstarter Funds? This is a very complex question, and raises a lot of issues. It is not an easy answer because of the ridiculous complexity of foreign tax laws.
Its a difficult process, and with Kickstarter’s tight guidelines, its a risk to do all of that work and find out that your project does not meet those guidelines. Indiegogo, which offer the exact same service allows pretty much anyone to run a campaign.
**This is not meant to be tax advice, and should not be mistaken for it. It is simply analyzing a potential scenario. Your situation is most likely unique and needs a licensed tax professional to look at it.
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